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USDJPY (109.21): The US dollar turned weak against the yen earlier today as theprice was seen pushing lower to test the familiar support level at 109.15. However, there is scope for an upside bounce as long as the support level is not breached and USDJPY manages to find support on a retest of the trend line that was breached recently. USDJPY could remain range bound within 110.72 - 109.15 levels in the near term. With the support at 109 regionstrongly being tested, the bias could be to the upside. However, expect further declines in the event that the 109.15 support is breached on a daily basis.

GBPUSD (1.2930): The GBPUSD formed an inside bar in yesterday's session. Price action remains flat at the moment, but the upside target to 1.3033 remains likely. The decline to 1.2920 yesterday signals a level of support, and thus, the upside could prevail. GBPUSD remains consolidating within the ascending wedge pattern and could remain on track to rally towards 1.3033 where resistance is yet to be established. This level also marks the right shoulder of the head and shoulders pattern that is evolving on the daily chart. However, in the event that GBPUSD slips below the support level at 1.2908, we can expect further declines that could push the cable down to 1.2829.

EURUSD (1.1906): The EURUSD settled into trading within Friday's range yesterday but continues to remain trading below the 1.20 handle. On the intraday charts, EURUSD remains supported above the support level of 1.1882 which could keep the currency pair biased to the upside. Another retest to the minor resistance level at 1.1962 could be tested. The common currency remains trading flat at the moment and could see this continue into Thursday's ECB meeting. A breakout from this range of 1.1962 and 1.1882 could signal the near-term direction in the currency pair. To the upside, 1.2000 resistance will need to be cleared to post further gains, while to the downside, 1.1688 remains the next key support level.

USD/CHF - 0.9566

Most recent candlesticks pattern : N/A

Trend                                    : Down

Tenkan-Sen level                  : 0.9567

Kijun-Sen level                    : 0.9577

Ichimoku cloud top                 : 0.9614

Ichimoku cloud bottom              : 0.9602

Original strategy :

Buy at 0.9520, Target: 0.9620, Stop: 0.9485

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9520, Target: 0.9620, Stop: 0.9485

Position : -

Target :  -

Stop : -

The greenback has continued trading lower after yesterday’s gap-down opening, suggesting further consolidation below last week’s high of 0.9680 would be seen and downside risk is for another fall towards 0.9539 support, however, if our view that low has been formed at 0.9428 last week is correct, downside would be limited to 0.9520 and bring another rebound later. Above 0.9615-20 would bring test of 0.9653-55 resistance, break there would bring another rise to 0.9680 but break there is needed to add credence to this view and extend gain to resistance at 0.9698-99. 

In view of this, would not chase this rise here and would be prudent to buy dollar on further subsequent retreat. Below 0.9515-20 would risk weakness to 0.9490-00 but still reckon downside would be limited to 0.9450-60 and said support at 0.9428 should remain intact, bring another rebound later.

Safe haven assets were once again on the forefront as North Korea launched fresh missile tests. The skirmishes continued with South Korea following up with military drills while Japan engaged in building international support. Following the tests that occurred on Sunday, the US dollar was seen on the back foot as a result.

On the economic front, data yesterday showed that the UK's construction PMI fell to a 12-month low in August at 51.1. The British pound was slightly weaker on the news but managed to hold on to the gains from last week. Earlier today, the Reserve Bank of Australia's monetary policy meeting saw the central bank holding interest rates steady. Later in the week, the quarterly GDP and monthly retail sales data from Australia is expected. RBA Governor Lowe is also scheduled to speak during the day.

Looking ahead, the UK's services PMI will be coming out today. Forecasts point to a modest print of 53.5 in August, slightly lower than July's 53.8. In the US, the Fed's Brainard is scheduled to speak followed by Kashkari and Kaplan. The US factory orders data is also expected with forecasts point to a 3.3% contraction.

Asia Summary

Asian equity markets opened slightly higher before retreating for the second day and currencies returned to more muted trade as expectations of military action on North Korea fell. Analysts note that the current class of FX traders is not showing the same instinct to head for USD in moments of crisis like prior generations. This is reinforcing USD's structural bearishness. They note that the yen, euro and even the yuan are moving into the safe haven flow seat. The onshore yuan trades near its highest level in 15-months amid a weaker dollar. PBOC again skipped OMO for the 4th consecutive day and set the yuan reference rate stronger for the 7th consecutive day. The Australian dollar rose to 0.7986 after Q2 trade data showed net exports will add 0.3% to Q2 GDP, which will be released tomorrow. Japan 10-yr JGB auction had a lowest price of 100.83 compared to the 100.86 expected by the markets. As expected RBA left rates on hold, statement mostly unchanged from prior meeting. AUD fell ~0.1% on the news.

North Korea was seen moving ICBM missile towards the west coast for a possible launch before Saturday. There is a high chance North Korea will fire ICBM missile before Sept. 9th, its national founding day. Saw reports that there was dollar selling to smooth the won on Monday. Today, the won was relatively unchanged as markets return to smoother operations.

Key economic data

(NZ) New Zealand Q2 Volume of All Buildings Q/Q: -0.5% v +1.6%e (2nd consecutive decline, 1st time since 2011)

(HK) Hong Kong Aug PMI Services: 49.7 v 51.3 prior (1st contraction reading in 5-months)

(PH) PHILIPPINES AUG CPI M/M: 0.3% V 0.2%E; Y/Y: 3.1% V 3.0%E; CPI CORE Y/Y: 3.0% V 2.2%E

(AU) AUSTRALIA Q2 BOP CURRENT ACCOUNT BALANCE -$9.6B V -A$7.5BE; NET EXPORTS OF GDP: 0.30 V 0.00E

(CN) CHINA AUG CAIXIN PMI SERVICES: 52.7 V 51.5 PRIOR, PMI COMPOSITE:52.4 V 51.9 PRIOR

Speakers and Press

China/Hong Kong

(CN) Researcher says China should keep size of FX reserves - Chinese Press

(CN) China President Xi: Economic downward risks and uncertainties are rising; Calls for opposing protectionism

Korea

(KR) G7 Statement on North Korea: Condemn nuclear test; NK must abandon all nuclear missile program

(KR) South Korea President Moon: halting oil shipments to North Korea should be considered closely by UN

(KR) South Korea to designate Oct 2nd as a temporary holiday, in an effort to boost domestic consumption

(KR) North Korea seen moving ICBM for a possible launch before Saturday - Asia Business Daily

Asian Equity Indices/Futures (00:00ET)

Nikkei -0.6%, Hang Seng +0.2%; Shanghai Composite +0.2%, ASX200 -0.2%, Kospi -0.2%

Equity Futures: S&P500 -0.3%; Nasdaq100 -0.2%, Dax 0.0%, FTSE100 -0.1%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.1911-1.1890; JPY 109.84-109.21; AUD 0.7986-0.7942; NZD 0.7177-0.7159

Dec Gold +0.8% at $1,341/oz; Oct Crude Oil +0.2% at $47.39/brl; Sept Copper +0.2% at $3.16/lb

(CN) PBoC skips OMO operations v skips prior; Drains net CNY70B v CNY140B prior (4th consecutive skip)

USD/CNY (CN) PBOC SETS YUAN REFERENCE RATE AT: 6.5370 V 6.5668 PRIOR (7th consecutive stronger setting)

(TH) Thailand sells THB105B combined 3-month, 6-month and 1-yr bonds

(JP) Japan MoF sells ¥2.299T in 10-yr 0.1% (prior 0.1%) JGBs; Avg yield: 0.011% v 0.073% prior; bid to cover: 3.95x v 4.21x prior

Equities notable movers

Hong Kong/China

4.HK Submits listing application related to planned spin off of Wharf Real Estate Investment Co; +3.3%

2202.HK Reports Aug property contracted sales CNY37.04B; YTD CNY349.8B v CNY312.7B prior; +4%

Australia/New Zealand

RAP.AU Reaffirms commitment for a follow-up SMARTCOUGH-C Study; -15%, attributed to consolidation after moving +60% over the last several days

SXY.AU Awarded 58 square kilometre Surat Basin coal seam gas acreage by Queensland government; +4%

GBP/USD - 1.2934

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2928

Kijun-Sen level                    : 1.2939

Ichimoku cloud top              : 1.2954

Ichimoku cloud bottom        : 1.2924

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As the British pound has retreated after last week’s anticipated rally to 1.2996, suggesting consolidation below this level would be seen and test of support at 1.2900-05 cannot be ruled out, however, break there is needed to signal top has been formed there and bring retracement of recent rise to 1.2875-80 but reckon previous chart support at 1.2852 would hold from here.

In view of this, would not chase this rise here and would be prudent to stand aside for now. On the upside, above 1.2965-70 would suggest the pullback from 1.2996 has ended, bring retest of this level, however, a sustained breach above psychological resistance at 1.3000 is needed to encourage for recent erratic upmove to extend headway to 1.3032 first

EUR/USD - 1.1907

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 1.1901

Kijun-Sen level                  : 1.1902

Ichimoku cloud top             : 1.1902

Ichimoku cloud bottom      : 1.1899

Original strategy  :

Sell at 1.1955, Target: 1.1855, Stop: 1.1990

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1955, Target: 1.1855, Stop: 1.1990

Position : -

Target :  -

Stop : -

As the single currency has traded narrowly, suggesting further sideways trading would be seen and although another bounce to 1.1925-30 is likely, reckon 1.1950-55 would limit upside and bring another decline, below 1.1850 would signal the rebound from 1.1823 has ended, bring test of this level, break there would add credence to our view that top has been formed at 1.2070 earlier and extend the fall from there to 1.1815-18 (61.8% Fibonacci retracement of 1.1662-1.2070), then 1.1790-00 but downside should be limited and previous support at 1.1773 should remain intact. 

In view of this, we are looking to sell euro again on recovery as 1.1950-55 should limit upside. Only break of said resistance at 1.1980 would abort and signal the fall from 1.2070 has ended at 1.1823 yesterday, bring further gain to 1.2000 and possibly towards 1.2025-30.

Price is trading in the red, but the bears are a little exhausted on the daily chart. Moves somehow sideways right now and the corrective phase could end soon. Technically, is hard to believe that will drop further to reach the 0.9427 spike low in the upcoming weeks, a rebound is more likely to come.

USD/CAD dropped much below the 1.2400 psychological level and could resume the downside movement. You can see that is pressuring some support level, a valid breakdown will confirm a further drop in the upcoming period.

The major downside target stands at the lower median line (LML) of the major descending pitchfork, only a failure to reach it will signal a reversal.